Case 1: Piggybacking on an Established Financial Infrastructure

Vital Savings Statistics: Small Enterprise Foundation, South Africa 1/ Type of institution NGO Number of deposit accounts     Demand deposits Circa 6,600   Term deposits   Average savings account (for individual savers) $ 2/     Demand deposits ($) 17.76   Term deposits   Total value of savings($) 2/     Demand ($) 544,000   Term($)   Total number of borrowers Circa 35,000 Loan portfolio($) 5.5 million Percentage of rural/urban clients 100 Number of branches 15 1/ Data as of May, 2006 2/ Data as of June, 2005

Technique:
Using existing infrastructure from commercial and postal banks to increase efficiency in the delivery of savings services.

Takeaway:
Where infrastructure exists, servicing the poor is better achieved by developing partnerships between a savings facilitator or NGO, like SEF, and the infrastructure owners, in this case, commercial and postal banks.

Results:
Banks have access to over 35,000 clients at a low cost, since they handle group accounts. SEF minimizes costs by not managing cash. Clients have access to formal banking organizations and an approximate of 15% of SEF clients now hold individual accounts at formal institutions.

Case:
SEF began operations in 1992 providing micro-enterprise loans and facilitating savings to the poor and very poor in the rural and peri-urban areas of Limpopo and Mpumalanga provinces. SEF uses a Grameen-based model of five members. It helps groups organize themselves, but does not collect savings directly; in fact, SEF's staff never handles cash. Instead, it builds relationships with banking institutions and helps groups to open accounts in which they deposit their savings every two weeks.

Since SEF couldn't afford to create its own branch infrastructure it instead developed partnerships with banks that already have an infrastructure in place. It originally began operating with what is now Nedbank, a commercial bank. Soon afterwards, in 1995, it also began operating with PostBank, as SEF expanded into more rural areas, where PostBank had a strong presence. Today, SEF uses both banks to link its clients to the closest branch.

Banks' benefits from this partnership come from the fact that SEF is a distribution network that allows them to reach persons at the very low end of the market. SEF organizes clients in groups, so that average balances are higher and instead of receiving several payments from one group they receive only one, helping them keep their operating costs low. In addition, the banks benefit from SEF clients who decide to open their own individual accounts, which SEF staff estimates to be close to 15% of all clients. This is an estimated increase of 10% from eight years ago.

Although the depth of the bank's network is therefore crucial, there are other variables that SEF looks for in its regional partners. Where possible, SEF prefers to partner with Nedbank, the commercial bank since its technological capabilities are more advanced, which increases efficiency and transparency. Nedbank has on-line processing in all its branches and overall offers a more professional service. Postbank, however, is aware of this situation and has made great strides in improving their capacity and responsiveness in the last year or so.

One key element of SEF's partnerships is that clients' group accounts must be 'no fee' accounts. For a few years in the late 1990s the partnership between Nedbank and SEF was suspended because Nedbank wanted to impose a R1000 (approx $150) minimum requirement per account. Since 2004, when the partnership was re-established, not only do SEF clients have access to 'no fee' accounts, but there is also a dedicated banking window at many of Nedbank's branches. One clear incentive for Nedbank was that SEF had grown from 6,144 clients to more than 25,000.

The context in which these partnerships have taken place has been important. In 2002, the financial sector committed itself to the development of the historically disadvantaged people in South Africa by signing a voluntary agreement called the Financial Sector Charter. All major banks signed in and agreed to make available effective transaction and savings facilities to 80% of those living in the LSM 1-5 range. This positive development in the industry has meant that linking with an organization like SEF, who holds a portfolio of more than 25,000 clients, is more attractive than ever.

This new environment has helped to promote innovation within the sector and its stakeholders. The government, for example, promoted the creation of the 'Mzansi account', which is a low transaction and low fee account for the lowest LSM categories offered by all major savings providers. Also, commercial banks are looking for new solutions to increase access in poorer communities. Nedbank has asked SEF for advice in the development of its "banks in a box" initiative, which consists of putting small transport crates on a slab of concrete in rural areas.

In sum, SEF's model provides an alternative to extend the use of existing infrastructure to serve the poor. Banks benefit by having access to a large number of new clients at a low cost; the NGO keeps its operating costs low since it doesn't have to deal with cash management; and clients have access to formal savings services on beneficial terms. Particularly relevant in South Africa has been the voluntary commitment from the financial sector to increase access to the poor, which has created a favorable environment for bringing innovation and automation to the sector.